San Diego pension official quits over legal issue

The city of San Diego’s refusal to give additional legal protection to its pension board has led one member to quit and the incoming president to question whether he is willing to serve.

Susan Gonick, who was appointed by Mayor Jerry Sanders in 2007, quit the board last week shortly after a City Council committee declined a request by pension officials to provide broader legal indemnification to board members that would allow them to hire their own attorneys at taxpayer expense. Ray Ellis, scheduled to become board president on April 1, initially told Sanders last week that he would be unwilling to accept a reappointment but has since said he is open to serving again.

The persistent legal issues raised at the San Diego City Employees’ Retirement System has led to concerns by board members, who are unpaid volunteers, that they could be sued as individuals and be forced to defend themselves at great personal expense if the city balks at representing them. The city may struggle to fill vacancies on the 13-member board in the future if those concerns aren’t addressed.

City Attorney Jan Goldsmith, who has been highly critical of the proposal, said it was unnecessary and reckless to provide additional legal cover to the pension board beyond the protection they already receive as public employees under state law. Council members followed his advice and rejected the proposal March 9.

Two days later, Ellis informed Sanders in a letter that he was frustrated with the city’s decision and would unwilling to serve beyond his current term, which expires March 31.

“I appreciate the confidence you had in appointing me in September of 2008, but the city of San Diego’s position on trustee indemnification on civil litigation is unacceptable to me,” Ellis wrote. “... Any suggestions and attempts to reach common ground on our part have been met with resistance or a simple ‘no.’”

Ellis reconsidered after the pension board held a closed session meeting on Tuesday and has informed the mayor that he is open to a second four-year term, said Mark Hovey, the pension system’s chief executive. Hovey said he couldn’t divulge what was discussed in closed session.

Ellis and Gonick declined to comment Thursday through Hovey. So far, no other members have said they would leave the panel.

The board is responsible for administering the retirement benefits of city, port and airport employees and managing investments for the $5 billion fund. The mayor has seven appointees along with a city representative while the five other slots are filled with active and retired workers.

There is precedent for offering legal indemnification to board members, but it is viewed by many at City Hall as a prime example of bad public policy.

A previous City Council granted blanket legal protection to pension board members in 2002 as part of a deal that significantly increased retirement benefits for city workers. At the time, board members feared lawsuits because the deal also called for them to allow the city to underfund the pension system, an ill-advised financial decision that led to today’s $2.1 billion pension deficit.

The city rescinded that indemnification policy in 2006 but not before racking up $2 million in legal fees to represent six former trustees in two pension-related civil cases. Now those same officials are suing the city for an additional $5 million in attorneys’ fees stemming from criminal prosecutions that were eventually dropped. They had faced conflict-of-interest charges for their role in the 2002 deal after prosecutors accused them of sweetening their own pensions with the vote.

In his letter to Sanders, Ellis directed much of his frustration at Goldsmith.

“The city attorney’s current political rhetoric and lack of effort on a meaningful solution puts trustees at great personal financial risk now and in the future,” he said. “I view this as a strategy on the city attorney’s part to undermine the independence and prudent governance of the SDCERS trust fund.”

As city attorney, Goldsmith has been involved in several legal tussles with the pension system over various retirement issues. He has accused the board of being overly litigious and taking legal positions that defy the city charter.

“Some trustees have asked the city to go beyond state law and eliminate exceptions built into the state law. That would be a blank check that no other employee receives — not police officers, firefighters, the mayor, City Council or even the governor,” Goldsmith said in a statement Thursday. “It would be reckless for the city to do that.”

Sanders must now select a replacement for Gonick that will need to be approved by the City Council. A mayoral spokesman was checking on whether Sanders would reappoint Ellis.